China to scrap 40pc export duty on metallurgical coke

China will scrap an export duty of 40 per cent on metallurgical coke, a steelmaking raw material, from next year, an official with the Ministry of Finance said, in a move that could spark a surge in Chinese exports and threaten regional vendors.

China used to be the world's largest exporter of coke, but its exports have almost dried up since 2008, when Beijing raised the export duty from 25 per cent in a bid to reduce pollution.

Still, an end to the tough tariffs could send Chinese exports jumping to 8 million to 10 million tonnes in 2013, up from an expected 1 million this year, which would be a game changer for the regional seaborne market.

"China's annual coke production is at about 420 million tonnes this year and the domestic market is oversupplied. The change in taxes will encourage coke producers to send more stocks abroad," said Ma Cheng, an analyst with Galaxy Futures in Beijing.

"It will weigh on regional prices but prices won't collapse because the price of coke is largely tied to the price of coking coal."

Coking coal is a key ingredient in making metallurgical coke, largely used as a fuel in blast furnace steel production.

The move to scrap coke tariffs followed a ruling by the World Trade Organisation in July last year that China's export curbs on several raw materials breached free-trade rules. The body has set a deadline of December 31 for Beijing to act.

A combination of overcapacity and tepid demand in the domestic market has also caused heavy losses to Chinese coke makers, prompting them to appeal to Beijing to cut duties and so increase the number of their sales outlets.

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Still, it is not clear if Beijing will adjust the export quota for producers and traders, although analysts said there was little need to do so, since actual shipments have been far lower than the annual cap.

The 2012 quota was set at 9 million tonnes but total exports of coke and semi-coke in the year to October were only 907,000 tonnes, a fall of 71 per cent from year ago. Annual exports stood at around 10 million to 15 million tonnes between 2000 and 2007.

"There will be no export tariff (for coke) starting from 2013," said the official, who declined to be identified as he was not authorised to speak to media.

WEIGH ON PRICES

Scrapping the hefty export tariff would boost the competitiveness of Chinese supplies and pressure regional prices, already hit this year by the global economic slowdown.

Coke prices from China's port of Tianjin with 62 per cent CSR material are hovering at around $US400 a tonne on a free-on-board basis. The tariff removal could send prices down to around $US275, analysts said.

That compares with FOB prices of around $US280 a tonne for Japanese supplies. Increased Chinese supplies may also pose competition from Russian and Ukrainian exporters.

China's coke producers, now operating at around 70 per cent of capacity, would be likely to ramp up production as foreign markets become more accessible.

A rise in Chinese coke exports to 15 million tonnes will prompt a rise of around 20 million tonnes of coking coal, said Helen Lau, a senior analyst at UOB-Kay Hian.

Still, an increase in coking coal demand will mostly benefit Chinese and Mongolian coking coal producers as most Chinese coke ovens are located in the inland provinces of Shanxi and Hebei, which makes Australian and US imports uneconomical, Lau said in a note.